IDEAS home Printed from https://ideas.repec.org/p/fip/fedlwp/1984-010.html
   My bibliography  Save this paper

How natural is the natural rate?

Author

Listed:
  • Monojit Chatterji
  • K. Alec Chrystal

Abstract

In the last two decades the one macroeconomic concept which has become standard equipment in macroeconomics is the Natural Rate Hypothesis (NRH). The NRH is usually embodied as a vertical aggregate supply curve and forms a cornerstone of the \"policy ineffectiveness\" proposition. We emphasize that the driving power of the policy ineffectiveness proposition derives from the joint assumptions that (a) the aggregate supply curve is vertical and (b) that the aggregate supply curve is independent of aggregate demand. ; We claim that this usage of the NRH is inappropriate for many purposes. It results from a trivialization of the supply structure of the economy and has little justification if it is intended to analyze the real effects of virtually any imaginable policy. We give some examples where minor modifications to the supply structure generate an aggregate supply curve which is not independent of aggregate demand. With fully informed optimizing agents each policy action will generate a new general equilibrium. Nothing is \"natural\" and little is policy invariant. Evidence is presented to show that the issues raised may be of empirical significance.

Suggested Citation

  • Monojit Chatterji & K. Alec Chrystal, 1984. "How natural is the natural rate?," Working Papers 1984-010, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1984-010
    as

    Download full text from publisher

    File URL: http://research.stlouisfed.org/wp/1984/1984-010.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    2. Herschel I. Grossman, 1980. "Rational Expectations, Business Cycles, and Government Behavior," NBER Chapters, in: Rational Expectations and Economic Policy, pages 5-22, National Bureau of Economic Research, Inc.
    3. Buiter, Willem H, 1980. "The Macroeconomics of Dr. Pangloss: A Critical Survey of the New Classical Macroeconomics," Economic Journal, Royal Economic Society, vol. 90(357), pages 34-50, March.
    4. Evans, Paul, 1984. "The Effects on Output of Money Growth and Interest Rate Volatility in the United States," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 204-222, April.
    5. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Silva Lopes, Artur, 1994. "A "hipótese das expectativas racionais": teoria e realidade (uma visita guiada à literatura até 1992) [The "rational expectations hypothesis": theory and reality (a guided tour ," MPRA Paper 9699, University Library of Munich, Germany, revised 23 Jul 2008.
    2. Zijp, R. van, 1990. "New classical monetary business cycle theory," Serie Research Memoranda 0058, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    3. Sajjadur Rahman, 2018. "The Lucas hypothesis on monetary shocks: evidence from a GARCH-in-mean model," Empirical Economics, Springer, vol. 54(4), pages 1411-1450, June.
    4. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
    5. Kitchen, John & Orden, David, 1991. "Effects of Fiscal Policy on Agriculture and the Rural Economy," Staff Reports 278556, United States Department of Agriculture, Economic Research Service.
    6. Ali F. Darrat, 1985. "Does Anticipated Fiscal Policy Matter? The Italian Evidence," Public Finance Review, , vol. 13(3), pages 339-352, July.
    7. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    8. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 115-136, Fall.
    9. Mishkin, Frederic S, 1982. "Does Anticipated Aggregate Demand Policy Matter? Further Econometric Results," American Economic Review, American Economic Association, vol. 72(4), pages 788-802, September.
    10. Samson, Lucie, 1988. "Chocs sectoriels et chômage," L'Actualité Economique, Société Canadienne de Science Economique, vol. 64(4), pages 532-544, décembre.
    11. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    12. Chávez Alvarez, Gonzalo, 1989. "Alta Inflación, Hiperinflación y Variabilidad de los Precios Relativos: El Caso Boliviano," Documentos de trabajo 5/1989, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    13. Kevin D. Hoover & Òscar Jordà, 2001. "Measuring systematic monetary policy," Review, Federal Reserve Bank of St. Louis, vol. 83(Jul), pages 113-144.
    14. Bennett T. McCallum, 2002. "Recent developments in monetary policy analysis: the roles of theory and evidence," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 67-96.
    15. Robert J. Gordon, 2011. "The History of the Phillips Curve: Consensus and Bifurcation," Economica, London School of Economics and Political Science, vol. 78(309), pages 10-50, January.
    16. Gauger, Jean Ann, 1984. "Three essays on the neutrality of anticipated money growth," ISU General Staff Papers 198401010800008758, Iowa State University, Department of Economics.
    17. N. Gregory Mankiw, 2008. "Makroekonomista jako naukowiec i inżynier," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 85-106.
    18. Bitros, George C., 2021. "Destabilizing asymmetries in central banking: With some enlightenment from money in classical Athens," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    19. Frederic S. Mishkin, 2007. "Will Monetary Policy Become More of a Science?," NBER Working Papers 13566, National Bureau of Economic Research, Inc.
    20. Hartley, Peter R. & Walsh, Carl E., 1991. "Inside money and monetary neutrality," Journal of Macroeconomics, Elsevier, vol. 13(3), pages 395-416.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:1984-010. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anna Oates (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.